QE2 Pushes Mortgage Rates to New Lows
McLEAN, Va. (
) -- Mortgage rates have dropped further over the past week, thanks to the
Federal Reserve
's plan to invest additional funds into the market to spur economic growth.
Freddie Mac
(FMCC.OB)
, the government-backed mortgage-finance giant, said Thursday that rates for traditional 30-year fixed mortgages dropped to a new low of 4.17%, on average -- breaking a previous record low of 4.19% hit in mid-October. Other types of mortgages Freddie tracks - with 15-year fixed rates or shorter term adjustable rates - also declined over the past week. Freddie and its sister company,
Fannie Mae
(FNMA.OB)
, stand behind the vast majority of new mortgage issuance and refinancing.
>>>Should I refinance?
Mortgage rates have been on a steady decline for months because of a combination of federal monetary policy and investors' flight to "safe" bond investments backed by the government. Homeowners who fit into "conforming" loans backed by Freddie have been paying below 5%, on average, since early May and below 6% since December 2008, when the Fed first slashed interest rates to nearly zero.
Since then, the Fed has repeatedly pledged to keep interest rates low for "an extended period" as the economy continues to heal. But, as economic activity remained sluggish, investors began to worry that low rates weren't enough. On Nov. 3, the Fed outlined plans to invest $600 billion in Treasury bonds to keep rates low, add liquidity to the market and prod investors out into riskier assets. The move has helped keep rates low, but it's still questionable whether economic activity will rise as a result, or whether the Fed has simply run out of tools to help boost the economy.
"Despite historically low mortgage rates, however, the housing recovery continues to be slow owing in part to household job uncertainty and tight credit conditions," Freddie Mac Chief Economist Frank Nothaft said in a statement. "The unemployment rate has remained at 9.5 percent or higher for the past 15 months, while commercial banks tightened lending standards in 16 of the last 17 quarters, according to the Fed's Senior Loan Officer Opinion Survey."
-- Written by Lauren Tara LaCapra in New York
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